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Credit deflation and the reflation cycle to come (part 2)


spunko

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Talking Monkey
36 minutes ago, DurhamBorn said:

Il jump in,potash goes on cabbages to make them grow,no potash no cabbage yield.Prices go up farmer has no choice to pay,he passes on some/all of cost increase,Tesco pass on all/some of increase.Consumer shops around,we cant be sure where he will go for his cabbage,we cant know the farmer who wins,or the supermarket,or even if it will be cabbages,but we know the potash miner doesnt care.They are closest to the inflation and the others all have no choice but to pay.

They are the de-complex part of the market,the prime ,simple input,but vital.

Thanks DB makes sense. 

12 minutes ago, DurhamBorn said:

We go to industry yes,but that doesnt mean Labour regain much bargaining power,though wages should keep up with inflation.The main part of the distribution cycle is people having to sell assets for income rather than the assets creating the income.Only inflation loving assets will keep ahead.Most pension draw downs with IFAs for instance are 60% bonds or 80% bonds.They are likely to see 3%+pa falls over the cycle and create hardly any income.People will be selling assets to live and losing 3%+ and paying fees.

No IFA will transfer clients into inflation loving sectors until 2028 and by them their capital will be decimated.

My gut says Labour doesn't get much bargaining power due to the overlay of tech/automation. Because of that I think wages will somewhat fall behind keeping up with inflation. It would be great i fthe working man would win here but I am pessimistic on this

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sancho panza
24 minutes ago, DurhamBorn said:

We go to industry yes,but that doesnt mean Labour regain much bargaining power,though wages should keep up with inflation.The main part of the distribution cycle is people having to sell assets for income rather than the assets creating the income.Only inflation loving assets will keep ahead.Most pension draw downs with IFAs for instance are 60% bonds or 80% bonds.They are likely to see 3%+pa falls over the cycle and create hardly any income.People will be selling assets to live and losing 3%+ and paying fees.

No IFA will transfer clients into inflation loving sectors until 2028 and by them their capital will be decimated.

Cheers DB.So it's more predicated on the consumer losing purcahsing power trather than someone/thing gaining perse.I rememmebred it being a bit more nuanced than my attempt above.

Like @Talking Monkey I'm struggling to see Labour gaining much pricing pwoer in thsi environment,especially if commodity input  costs are rising-which I think they will be.

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The Idiocrat
18 minutes ago, Talking Monkey said:

Thanks DB makes sense. 

My gut says Labour doesn't get much bargaining power due to the overlay of tech/automation. Because of that I think wages will somewhat fall behind keeping up with inflation. It would be great i fthe working man would win here but I am pessimistic on this

Immigration. They'll leave the taps on full. Deliberate suppression of wages and removal of worker bargaining power (with the support of the left!), as they have been doing for the last 20 years.

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Chewing Grass
1 hour ago, spygirl said:

I think a large element is that it's really plebs trying to be middle class - cars, holidays, etc, without realising they are just plebs with access to ruinous levels of debt.

See that everywhere near me, small 1950s Semis, the ones with box-rooms the size of cupboards for a third bedroom with two PCP/H BMW/Mercs parked in what was the tiny front garden. This is up avenues where 25 years ago you would be lucky to see a new Fiesta but in real terms they earn no more but think they are living the dream.

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InLikeFlynn
13 hours ago, Festival said:

Great blog everyone keep it up.

Anyone have a view how safe the online investment brokers like Interactive Investor, AJ Bell, Hargreaves and Lansdown etc are? 

I'm increasingly concerned about return of capital as opposed to return on capital as we approach this autumn. How likely is it that these brokers could lock up or worse if we get a second bigger leg down in the market in the late summer or autumn.....................................................

Am I mad or are others protecting against this if the debt deflation really takes hold later this year?

Not mad at all. I've been looking at our investments in a similar way. I favour investment trusts but until recently only held a few, thinking that would offer all the diversification I need however I have broadened our holdings to mitigate against an individual IT failing. Similarly my SIPP and ISA are with different providers: I will start another SIPP once my current one exceeds the £85k limit. I don't hold ETFs. 

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4 hours ago, DurhamBorn said:

Il jump in,potash goes on cabbages to make them grow,no potash no cabbage yield.Prices go up farmer has no choice to pay,he passes on some/all of cost increase,Tesco pass on all/some of increase.Consumer shops around,we cant be sure where he will go for his cabbage,we cant know the farmer who wins,or the supermarket,or even if it will be cabbages,but we know the potash miner doesnt care.They are closest to the inflation and the others all have no choice but to pay.

They are the de-complex part of the market,the prime ,simple input,but vital.

I haven't seen many new suggestions for decomplex trades, so how about Blockchain being one? If it is, how to invest? ...the 'blok' etf seems to contain lots of potential stocks, or buy the actual etf as picking individual winners is notoriously hard.                                                                                                                                                                                                                                           Btw blok is available in ii sipp/ISA. Most blockchain ETFs hold just large tech companies but blok seems pretty good (google 'blok holdings' for full list). Does anyone invest in other Blockchain ETFs they can recommend?

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4 hours ago, JMD said:

I haven't seen many new suggestions for decomplex trades

Water. We don't talk about water much. SP, this was in an article from Moneyweek in 2018 - any idea what the current position is?

"Early this year Cape Town's four million residents were keeping an eye on dam water levels with an obsessiveness usually reserved for Twitter, as local academic Hedley Twidle puts it in the Financial Times. Daily water consumption was restricted to just 50 litres per person per day about a third of average UK usage. "Day Zero" the date the city's rapidly evaporating reservoirs were expected to reach critical levels was months away.

At that point, the taps were to be shut off and about a million households would have to queue at water-collection points for daily rations of just 25 litres. Following an unprecedented drought, Cape Town was on course to become the world's first city to run out of water."

The article goes on to talk about rising worldwide demand, water wars, infrastructure investment ("Others say even more spending is needed, with estimates ranging from $6.7trn by 2030 to $22.6trn by 2050"), etc. I wont cut and paste the whole article, but the following were the investment suggestions:

"The water stocks to buy now

The cheapest and simplest way to invest in companies tackling global water scarcity is through exchange-traded funds (ETFs), though many of these have large parts of their portfolios allocated to conventional water utilities. One that concentrates more on technology aimed at addressing water shortages, with an emphasis on small and mid-cap companies, is the PowerShares Water Resources Portfolio (Nasdaq: PHO).

It tracks Nasdaq OMX US Water, an index of companies that focus on the provision of potable water and its treatment. The ETF has made a total return of just over 16% in three years and has a total expense ratio of 0.62%. It's not exactly an exciting holding, as James Brumley on InvestorPlace.com says, but it is a steady performer that should pay off in the long run. The case for buying it "holds water". UK-listed alternatives include the iShares Global Water(LSE: IH20) and Lyxor World Water (LSE: WATL) ETFs, although these have greater exposure to water utilities.

Perhaps the best individual stock to play the theme, and a top-ten holding in all three of those ETFs, is Xylem (NYSE: XYL). It operates in water infrastructure and applied commercial and industrial water technologies. But it is the company's smallest division, in measurement and control technologies, that is "arguably its most exciting", says Lee Samaha on Motley Fool.

When water is scarce, it's crucial that public utilities and industrial companies be able to monitor water usage to ensure they're using it efficiently. The firm's $1.7bn acquisition of Sensus (a global leader in smart meters, network technology, and data analytics) in 2016 helped boost Xylem's growth rate. "As long as public utilities (47% of Xylem's revenue) in developed and emerging economies are spending on water and wastewater projects, then Xylem has a bright long-term future."

One of US investment magazine Barron's favourite plays is Tetra Tech (Nasdaq: TTEK). It provides consulting, engineering, and programme-management services to big water-infrastructure projects. Tetra Tech earns roughly 40% of its revenues from US federal, state, and local governments, and 30% overseas. Its order backlog from international developments has grown 34% year over year to a record $2.5bn. Recent deals, such as its acquisition of Eco Logical Australia, have expanded its exposure to environmental and water services in the Asian-Pacific region.

Mueller Water Products (NYSE: MWA) manufactures a broad range of water infrastructure and flow-control products for use in water-distribution networks and water and wastewater treatment facilities, including engineered valves, hydrants and pipe fittings. It is a financially robust, dividend-paying company with a history of strong performance, says Arjun Bhatia on Simply Wall St News. Earnings are up 86% over the past year. The company has plenty of cash on its balance sheet and a history of regularly increasing dividend payments over the past decade.

Finally, consider French infrastructure giant Veolia (Paris: VIE). It is generally regarded as a plodding rubbish-disposal group, but its water treatment divisionis also a global leader in seawater desalination technology, notes Garry White, an analyst at Charles Stanley. That makes up a small but promising part of its overall business: Veolia has built more than 1,950 desalination systems in 85 countries over the last four decades. "

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jamtomorrow
4 hours ago, JMD said:

I haven't seen many new suggestions for decomplex trades, so how about Blockchain being one? If it is, how to invest? ...the 'blok' etf seems to contain lots of potential stocks, or buy the actual etf as picking individual winners is notoriously hard.                                                                                                                                                                                                                                           Btw blok is available in ii sipp/ISA. Most blockchain ETFs hold just large tech companies but blok seems pretty good (google 'blok holdings' for full list). Does anyone invest in other Blockchain ETFs they can recommend?

Interesting suggestion @JMD. I guess similar logic to investing in miners if you want a play that amplifies PMs? (Or: "in a gold rush, sell shovels")

Difficult space though, things move so quickly - ETF bods will have their work cut out keeping on top of the violent switchbacks that occur frequently in this space. Will GPUs or ASICs dominate the hash rate this coming year? Hard to tell.

Also: watch out for the upcoming BTC halving - it means that for the first time transaction fees and flows on/through crypto exchanges will be greater than mining flows. Again, practical impact hard to predict, but seems like a significant milestone - good article here: https://cointelegraph.com/news/bitcoin-halving-means-miners-will-no-longer-be-biggest-sellers-of-btc

When it comes to selling shovels, BTC has to be the prime consideration. Yes, there are other cryptos, but the BTC hash rate dwarfs everything else put together. Check out: https://coinmetrics.io/charts/

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11 hours ago, Dogtania said:

whenever the first lot of recipients start turning 50 I guess will be a turning point and by then may well be acknowledged that quite a lot has gone sour. 

Also no knowledge of how this works and could just be being cynical but wouldn't surprise me if these loans had been subsequently diced and sliced out to "spread the risk" and sold on or derivitaved up.

That's the full default.

You are getting v high levels of non payment.

The current student loan system and HE sector wont survive the first cursory analysis of the numbers.

Of course our fearless, probing press are ... just asking pointless virus questions everyday.

Useless.

Labour cant or wont raise the issue as the solution is to scale back I.e halve HE sector, so poof! That's a large part of its vote base.

 

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TheCountOfNowhere
11 hours ago, DurhamBorn said:

Il jump in,potash goes on cabbages to make them grow,no potash no cabbage yield.Prices go up farmer has no choice to pay,he passes on some/all of cost increase,Tesco pass on all/some of increase.Consumer shops around,we cant be sure where he will go for his cabbage,we cant know the farmer who wins,or the supermarket,or even if it will be cabbages,but we know the potash miner doesnt care.They are closest to the inflation and the others all have no choice but to pay.

They are the de-complex part of the market,the prime ,simple input,but vital.

£5 for a cabbage...people start growing their own cabbages.  So they still need potash ?

 

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leonardratso

yeah, that high volume big ticket item manufacturer of things nobody wants any more, i can see this deal will save the CuNtA.

 

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13 hours ago, Dogtania said:

whenever the first lot of recipients start turning 50 I guess will be a turning point and by then may well be acknowledged that quite a lot has gone sour. 

Also no knowledge of how this works and could just be being cynical but wouldn't surprise me if these loans had been subsequently diced and sliced out to "spread the risk" and sold on or derivitaved up.

Yes, Gordy B's trademark special of loading expensive liabilities long into the future so he could look good now!

12 hours ago, sancho panza said:

With a bit of luck Unis will be forced to get real,getting taxpayers to subsisdise £27,000 history degrees plus £25,000 living expenses makes no sense at all.

Its a massive amount of wasted money pumped in if you add it all up, all on the government credit card.  If i was to point a finger at why the masses are getting poorer, its crap like this that is stealthily burning the countries capital that is to blame IMO.

Even building higher quality houses, rather than the rubbish HTB ones that wont last 30 years, would be better for young people.  My parents 1930's semi is still going strong after 90 years, what are the flat packed plasterboard houses that are getting thrown up now going to look like in a similar time frame i wonder?

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DurhamBorn
55 minutes ago, TheCountOfNowhere said:

£5 for a cabbage...people start growing their own cabbages.  So they still need potash ?

 

Who cares?,at £4.80 a cabbage potash companies will of 20x in price.Thats how markets work.

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PaulParanoia
On 09/05/2020 at 17:54, Hardhat said:

Here's a question on laddering up

One of my best performing stocks is CWR (Ceres Power Holdings), a manufacturer of fuel cells (for hydrogen etc.). My holding is currently up 40%.

I'd quite like to increase this holding even more, as I see a lot of potential upside still ahead in the hydrogen sector. However, the share is now at a 40% premium to the last time I bought ... and I'm hovering over the buy button as it now seems expensive.

We've often discussed laddering down on here, but does anyone have any strategies for laddering up? Is this even a technique?

I've laddered up before, but only in clearly established up-trends.  I'm currently thinking that there's still too much volatility to be able to pick out any shares where this would be the case.

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PaulParanoia
12 hours ago, DurhamBorn said:

Il jump in,potash goes on cabbages to make them grow,no potash no cabbage yield.Prices go up farmer has no choice to pay,he passes on some/all of cost increase,Tesco pass on all/some of increase.Consumer shops around,we cant be sure where he will go for his cabbage,we cant know the farmer who wins,or the supermarket,or even if it will be cabbages,but we know the potash miner doesnt care.They are closest to the inflation and the others all have no choice but to pay.

They are the de-complex part of the market,the prime ,simple input,but vital.

You're enthusiasm for this industry was really puzzling me until I read this.  Cheers.

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13 minutes ago, Cattle Prod said:

I had to talk my missus out of buying miracle gro yesterday, and start loving the composter I made her! So I guess it depends on your skills, and what kind of cabbage you want..I certainly would grow my own, but not everyone has the space to be self sufficient in veg.

Comes back to the post a few pages back, now is probably a good time to buy an acre of agricultural land. Stick a few polytunnels on it, maybe pigs and chickens. An acre is a big piece of land relative to a garden.

Our last house had a one acre garden with a small wood. We had a very productive veg garden, greenhouse, fruit cage set up. It's possible to be remarkably self sufficient. It was too much for us in terms of combining with our day job but we are keen to go back to that when we are retired or semi retired. In fact we're heading over to the yorkshire coast on Wednesday for our first government mandated day out and will cruise by a couple of houses currently on the market with decent gardens. I wonder if the current self sufficiency vibe hold up or will people generally want to go back to being lazy consumers? I think it's more likely to be the latter.....

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TheCountOfNowhere
27 minutes ago, Cattle Prod said:

I had to talk my missus out of buying miracle gro yesterday, and start loving the composter I made her! So I guess it depends on your skills, and what kind of cabbage you want..I certainly would grow my own, but not everyone has the space to be self sufficient in veg.

Comes back to the post a few pages back, now is probably a good time to buy an acre of agricultural land. Stick a few polytunnels on it, maybe pigs and chickens. An acre is a big piece of land relative to a garden.

The main issue is finding a bit of land near to where you are.

Agri land, £5K to £10K, not a bad idea, if you can find it.

A 10 acre forest is worth having too I think.  Why 10 acres you ask....IIRC you then have rights to stay there in a caravan.

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DurhamBorn
21 minutes ago, PaulParanoia said:

You're enthusiasm for this industry was really puzzling me until I read this.  Cheers.

In dis-inflation things get cheaper from the start of the chain,but people dont pass on the savings to the next part ,so the people close to the consumer gain the most.In reflation things get more expensive from the start of the chain and those close to the consumer cant pass that increase on as quick.

 

 

13 minutes ago, TheCountOfNowhere said:

The main issue is finding a bit of land near to where you are.

Agri land, £5K to £10K, not a bad idea, if you can find it.

A 10 acre forest is worth having too I think.  Why 10 acres you ask....IIRC you then have rights to stay there in a caravan.

Iv been looking at woodlands,really fancy buying one,interesting on the caravan thing.

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DurhamBorn
43 minutes ago, Cattle Prod said:

I had to talk my missus out of buying miracle gro yesterday, and start loving the composter I made her! So I guess it depends on your skills, and what kind of cabbage you want..I certainly would grow my own, but not everyone has the space to be self sufficient in veg.

Comes back to the post a few pages back, now is probably a good time to buy an acre of agricultural land. Stick a few polytunnels on it, maybe pigs and chickens. An acre is a big piece of land relative to a garden.

Iv been trying to work out the best way to buy a small bit,like you say an acre,but struggling to find out where to buy etc.

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3 hours ago, jamtomorrow said:

Interesting suggestion @JMD. I guess similar logic to investing in miners if you want a play that amplifies PMs? (Or: "in a gold rush, sell shovels")

Difficult space though, things move so quickly - ETF bods will have their work cut out keeping on top of the violent switchbacks that occur frequently in this space. Will GPUs or ASICs dominate the hash rate this coming year? Hard to tell.

Also: watch out for the upcoming BTC halving - it means that for the first time transaction fees and flows on/through crypto exchanges will be greater than mining flows. Again, practical impact hard to predict, but seems like a significant milestone - good article here: https://cointelegraph.com/news/bitcoin-halving-means-miners-will-no-longer-be-biggest-sellers-of-btc

When it comes to selling shovels, BTC has to be the prime consideration. Yes, there are other cryptos, but the BTC hash rate dwarfs everything else put together. Check out: https://coinmetrics.io/charts/

Yes exactly right, blockchain and the cryptos are two different markets, each with different risk profiles. I think i'll use the blok etf, in my ii sipp, as it has a good mix of the small/medium companies - i.e. those developing/those exploiting the blockchain tech. So in theory this should get you exposure to future Crypto adoption (bitcoin and/or others), plus the application of the underlying blockchain tech.  

For some background, the etf manager is interviewed here...

 

In fact Pompliano has some interesting financial podcasts (mostly crypto ones I hasten to add because he is a big adopter of bitcoin and that's his main focus). Worth looking at his other financial themed ones I think (not the crypto ones though, unless your totally obsessed with crypto!). Btw, the discussions are a lot lot more intelligent than the... 'What's up guys, bang, bang!!' opening line suggests, so please bear with that (annoyance?) and have a listen.

For example, discussion was had on this thread recently about Raoul Pal, here is the Pomp/Pal podcast...

 

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TheCountOfNowhere
3 minutes ago, DurhamBorn said:

Iv been looking at woodlands,really fancy buying one,interesting on the caravan thing.

Im trying to find the information on the size of wood it;s best to buy, cant find it though but will keep looking.


Was 5 or 10 acres/hectares.

 

Will keep you posted.  Or Maybe i've drunk too much wine during Lockdown

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PaulParanoia
59 minutes ago, Cattle Prod said:

Nothing goes up in a straight line. If you are happy with the clearly established uptrend, set ladders for pullbacks? But you have to have conviction that the pullback is not another visit to the lows, which in my experience is very hard to do. I much prefer buying in and around multi decade lows!

Of course, always the preferred approach.  Looking at a company like BAT though, they had a 17 year up trend.  That's the sort of trend I'm happy to average up into.

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4 hours ago, CVG said:

Water. We don't talk about water much. 

The article goes on to talk about rising worldwide demand, water wars, infrastructure investment ("Others say even more spending is needed, with estimates ranging from $6.7trn by 2030 to $22.6trn by 2050"), etc. I wont cut and paste the whole article, but the following were the investment suggestions:

"The water stocks to buy now. The cheapest and simplest way to invest in companies tackling global water scarcity is through exchange-traded funds (ETFs), though many of these have large parts of their portfolios allocated to conventional water utilities. One that concentrates more on technology aimed at addressing water shortages, with an emphasis on small and mid-cap companies, is the PowerShares Water Resources Portfolio (Nasdaq: PHO).

It tracks Nasdaq OMX US Water, an index of companies that focus on the provision of potable water and its treatment. The ETF has made a total return of just over 16% in three years and has a total expense ratio of 0.62%. It's not exactly an exciting holding, as James Brumley on InvestorPlace.com says, but it is a steady performer that should pay off in the long run. The case for buying it "holds water". UK-listed alternatives include the iShares Global Water(LSE: IH20) and Lyxor World Water (LSE: WATL) ETFs, although these have greater exposure to water utilities.

Perhaps the best individual stock to play the theme, and a top-ten holding in all three of those ETFs, is Xylem (NYSE: XYL). It operates in water infrastructure and applied commercial and industrial water technologies. But it is the company's smallest division, in measurement and control technologies, that is "arguably its most exciting", says Lee Samaha on Motley Fool.

When water is scarce, it's crucial that public utilities and industrial companies be able to monitor water usage to ensure they're using it efficiently. The firm's $1.7bn acquisition of Sensus (a global leader in smart meters, network technology, and data analytics) in 2016 helped boost Xylem's growth rate. "As long as public utilities (47% of Xylem's revenue) in developed and emerging economies are spending on water and wastewater projects, then Xylem has a bright long-term future."

One of US investment magazine Barron's favourite plays is Tetra Tech (Nasdaq: TTEK). It provides consulting, engineering, and programme-management services to big water-infrastructure projects. Tetra Tech earns roughly 40% of its revenues from US federal, state, and local governments, and 30% overseas. Its order backlog from international developments has grown 34% year over year to a record $2.5bn. Recent deals, such as its acquisition of Eco Logical Australia, have expanded its exposure to environmental and water services in the Asian-Pacific region.

Mueller Water Products (NYSE: MWA) manufactures a broad range of water infrastructure and flow-control products for use in water-distribution networks and water and wastewater treatment facilities, including engineered valves, hydrants and pipe fittings. It is a financially robust, dividend-paying company with a history of strong performance, says Arjun Bhatia on Simply Wall St News. Earnings are up 86% over the past year. The company has plenty of cash on its balance sheet and a history of regularly increasing dividend payments over the past decade.

Finally, consider French infrastructure giant Veolia (Paris: VIE). It is generally regarded as a plodding rubbish-disposal group, but its water treatment divisionis also a global leader in seawater desalination technology, notes Garry White, an analyst at Charles Stanley. That makes up a small but promising part of its overall business: Veolia has built more than 1,950 desalination systems in 85 countries over the last four decades. "

thanks CVG - great information. For the coming cycle, I am mostly buying stocks, but for water/blockchain for example, I will be using etfs. 

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51 minutes ago, Sasquatch said:

I wonder if the current self sufficiency vibe hold up or will people generally want to go back to being lazy consumers? I think it's more likely to be the latter.....

Sasquatch, I agree with your sentiment, I think people will definitely go back to their former consumer spending habits... but isn't it pronounced 'latte'? (excuse my silly joke, I blame the lockdown)

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